(Feb-03) The dollar surged while equity markets and digital currencies plunged after US President Donald Trump announced significant tariffs on imports from China, Canada, and Mexico. This move, the most extensive act of protectionism by a US president in nearly a century, is expected to have widespread effects on inflation, geopolitics, and economic growth. The tariffs, affecting trade worth about $1.3 trillion, will raise the average US tariff rate significantly and could reduce US GDP by 1.2% while increasing core PCE by 0.7%. Mexico and Canada, heavily reliant on exports to the US, face severe economic risks, while China’s impact is more manageable. All three countries have vowed to retaliate, potentially expanding beyond tariffs. The overall impact on the US economy is uncertain, but significant disruptions are anticipated.
(Feb-03) President Trump reiterated his warning to the EU about impending tariffs, citing a large trade deficit and accusing the EU of not accepting US cars and farm products. His comments suggest little optimism for avoiding a North American trade war, which could spread globally. Following his threats, US stock futures and Asian shares declined, and the peso and Canadian dollar fell considerably. Both Canada and Mexico have pledged to retaliate, with China also vowing countermeasures.
(Feb-03) The upcoming week is significant, starting with market reactions to President Trump’s tariffs, SA State of the Nation Address (SONA) on Thur, and ending with the US payrolls report. Trump announced cutting off future funding to South Africa, accusing it of land confiscation and poor treatment of certain classes. This follows SA’s new bill allowing “nil compensation” for expropriated property. The rand weakened due to Trump’s comments and local load-shedding concerns, with potential moves to 19.00 USDZAR. Despite this, positive fundamentals for the rand remain, supported by a record gold price (saw a new high of 2817 31-Jan). A break below the 18.60 level would indicate a potential easing, otherwise, ZAR remain under pressure.
By Thuto Mukena - Institutional Sales Specialist (Jan-31)
It’s been a data-packed, headline-heavy week, with risk conditions swinging in all directions. The ZAR has had a choppy week, yesterday’s 25bps SARB rate cut sent the local unit in the red territory, reversing some of its prior session’s gains, leaving the pair to close the week at R18.5688/$.On the vol front, the 1-week volatility risk premium has compressed deeper into negative territory, highlighting that the market mispriced and underpriced this week’s risk conditions. USD/ZAR Implied vols also hover lower as we brace for an exit for this week , the 1W USD/ZAR implied vol tenor no longer trading at a premium over 1M. The tenor closed yesterday’s session 1.87 vol p.p below opening levels.
EM pairs saw mixed spot performance on the day, while most G10 currencies were offered, closing the session weaker. On the implied vol front, G10 implied vols largely tracked spot moves, with USD/CAD and USD/JPY 1-week implied vols standing out as the exceptions, firming by 145bps and 64bps from the open. Main event on the day was the ECB rate decision, EUR/USD 1-week implied vol dropped by 62bps, declining alongside spot in the aftermath of the ECB’s 25bps rate cut, which set the deposit rate at 2.75%. Key take aways from the press conference is that the central bank maintained a data-dependent stance on future cuts, emphasizing that policy remains restrictive while also flagging concerns about growth risks in the region.
By sizwe Mfayela - Institutional Sales Specialist (Feb-03)
Economic data releases